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MID-VALLEY PRODUCE CORP. v. 4-XXX PRODUCE CORP.

October 13, 1993

MID-VALLEY PRODUCE CORP. and PROBIOTIC MARKETING OF IDAHO, INC., Plaintiffs,
v.
4-XXX PRODUCE CORP. and PHILIP (a/k/a "PHIL") MELFI, individually and corporately, and ALICE MELFI, individually and corporately, Defendants/Third-Party Plaintiffs, v. HERBERT O. CASSIDY (a/k/a OWEN CASSIDY) and HARRY D. LUDLUM (a/k/a DAVID LUDLUM), Third-Party Defendants.



The opinion of the court was delivered by: LEONARD D. WEXLER

 WEXLER, District Judge

 Mid Valley Sales Corp., et al. ("Plaintiffs") bring this action against the 4-XXX Produce Corp. ("4-XXX"), Philip Melfi, and Alice Melfi ("Defendants") pursuant to the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. § 499a et. seq. to recover payment for $ 185,012.32 of potatoes sold to 4-XXX by Plaintiffs between March 27, 1991 and September 9, 1991 (hereinafter, "PACA trust funds"). In an opinion dated April 22, 1993, this Court granted Plaintiffs' motion for summary judgment against 4-XXX and Philip Melfi for the full amount in question. *fn1" On September 27, 1993, a trial was held regarding the liability of Alice Melfi for the PACA trust funds. At that trial, Plaintiffs attempted to show that moneys which comprised (1) a $ 250,000 loan, purportedly from 4-XXX to Alice Melfi, and (2) salaries and commissions paid by 4-XXX to Philip Melfi were derived from PACA trust funds and can be traced to a bank account and to a house, both owned by Alice Melfi. Plaintiffs contend that a constructive trust arose upon Alice Melfi's house and bank account as a result of these transactions. The following facts were established at trial:

 FINDINGS OF FACT

 1. During the time that Plaintiffs' claims arose, Alice Melfi was the sole stockholder of 4-XXX.

 2. During that time, Alice's husband, Philip Melfi, operated and controlled 4-XXX. Alice Melfi took no steps to ascertain whether the corporation was being operated in a responsible manner.

 3. Alice Melfi was nominated and elected to the 4-XXX Board of Directors on March 30, 1990. However, Alice Melfi was not at that March 30, 1990 meeting. Indeed, she did not attend any 4-XXX business meeting; she was not aware, until the time of this suit, that she had been elected as an officer of 4-XXX; she never signed any 4-XXX corporate documents; and she performed no work of any kind for 4-XXX.

 4. On or about August 31, 1989 a check was issued by 4-XXX to Alice Melfi in the amount of $ 250,000. This check represented a loan made by Arnold Sachs, the president of 4-XXX at that time, to Philip Melfi.

 5. The bulk of the proceeds of that loan was used by Philip Melfi to repay a debt he owed to another corporation that is unrelated to this case.

 7. Alice Melfi's house (the Melfi family residence), located at 421D Wading River Manor Road, Manorville, New York, was built by the Melfis prior to the date when the $ 250,000 loan was made to Alice Melfi.

 8. Alice Melfi paid her monthly mortgage payments of approximately $ 3,200 with approximately $ 2,800 that she received from her husband's earnings from 4-XXX and with $ 400 that she receives from a mortgage that she holds on her previous residence in Shirley, New York.

 9. In addition to the $ 2,800 mentioned above, Alice Melfi received a $ 613 check each week from her husband. This check represented commissions paid to Philip Melfi by 4-XXX. The money was used for living expenses, with any balance placed into Alice Melfi's bank account.

 10. For more than eighteen years, until July 30, 1993, Alice Melfi worked as a data transcriber for the IRS, recently earning ...


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